Honeywell eyes supplier shift to avoid tariff hit

(This version of the July 20 story corrects paragraph 1 to say company will increase the use of supply chain sources from non-China countries, not start sourcing from countries other than China)

By Ankit Ajmera

(Reuters) - U.S. industrial conglomerate Honeywell International Inc (HON.N) said on Friday it will increase the use of supply chain sources from non-China countries to counter growing costs related to a tariff war between the world’s two largest economies.

Honeywell’s shares rose as much as 4.4 percent to $153.99 after the company also reported a better-than-expected quarterly profit and raised its 2018 profit forecast for the third time as it benefits from increased demand for aircraft parts and services.

The conglomerate said it had boosted prices on some of its products and had locked in purchases of some raw materials and components before new tariffs on imports from China came into effect.

“The key here is to get ahead of it early, and I think we definitely have,” Chief Executive Darius Adamczyk told a conference call with analysts after the company’s second quarter results. “If you sit and wait, you could see substantial margin contraction.”

The maker of engines for business jets produced by Bombardier (BBDb.TO) and Textron (TXT.N) raised the low end of its full-year margin forecast to 19.4-19.6 percent from 19.3-19.6 percent, and said it was expecting limited impact from known tariffs due to its mitigating actions.

Honeywell and other industrial firms are seeing costs rising after President Donald Trump imposed a 25 percent tariff on imports of steel and 10 percent on aluminum from China and other countries.

“I wouldn’t tell you we’re not impacted, but we’re a lot more prepared,” Adamczyk said.

Excluding items, Honeywell earned $2.12 per share in the second quarter ended June 30, beating analysts’ average estimate of $2.01, according to Thomson Reuters I/B/E/S.

An ecommerce boom in the United States is also contributing to Honeywell’s profits, helping it sell more supply chain and warehouse automation equipment and software to customers including Amazon.com Inc (AMZN.O).

FILE PHOTO: A worker is seen building an aircraft engine at Honeywell Aerospace in Phoenix, Arizona, U.S. on September 6, 2016. REUTERS/Alwyn Scott/File Photo

Sales in the aerospace division, which makes auxiliary power units, braking systems and other parts for Boeing and Airbus single-aisle planes, rose about 10 percent to $4.06 billion.

The company now expects 2018 profit in a range of $8.05-$8.15 per share, up from $7.85-$8.05, and sales of $43.1 billion-$43.6 billion, up from $42.7 billion-$43.5 billion.

“(Honeywell results) reinforces our positive view, 2019 is going up,” said J.P. Morgan analyst Stephen Tusa. “HON still has an abundance of balance sheet flexibility to either add to the upside or cushion the blow of a potentially mixed macro.”